What Have Been The Effects Of Low Oil Prices To Canada’s Economy?

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The Canadian oil sands is a huge industry and a major support system for the Canadian economy. The recent downturn in the price of oil has been felt in the West and the Canadian economy is anxious to see the prices return to normal.

The Extraction Process

The Oil sands are almost exactly what they sound like. Normally, like if you install an oil well down in Texas or the Bakken oil fields of Montana and North Dakota, oil flows from its repository like any other fluid. However, oil sands are thick and clumpy and will not flow naturally. With oil sands, the oil is trapped in bitumen (the black stuff you see often used to build asphalt roads) and the bitumen needs to be heated or diluted to be of use and allow it to convert to a more fluid-like chemical construction.

Bitumen in its natural state can vary from a molasses-like compound to being as “hard as a hockey puck,” according to the Canadian Association of Petroleum Producers.

The Stats Behind Big Oil in Alberta

Oil is a necessary part of our lives. We use it to heat our homes, fuel our cars, lubricate our machines, and so much more. The entire planet is dependent on oil and that seems unlikely to change anytime soon. In Canada, the oil sands provide a massive economic benefit to the country and have created a lot of jobs for Canadians brave enough to venture out west to take part in the oil boom.

Listed below are some key figures from the oil sands:

The Canadian oil sands are the third-largest oil reserve in the world, preceded by Venezuela and Saudi Arabia.

In 2014, the oil sands were producing 2.3 million barrels per day.

Between 1999 and 2013, nearly $201 billion was invested in the oil sands. Between 2012-2022, it is estimated that an additional $207 billion will be invested.

For every $1 invested in the oil sands, an average of $8 is created.

In 2014, nearly 133,053 people were employed in Alberta’s energy sector.

Oil sands currently store around 170 million barrels in its reserves, or about 13 percent of the global oil reserves.

The oil sands were responsible for 22 percent of Alberta’s GDP in 2012.

Some of these numbers will vary based on the downturn in oil prices, but overall, these figures accurately depict how important the oil sands are for Alberta and the country as a whole.

The Winners and Losers Of Cheap Oil In Canada

Deciding who is winning and losing as a result of the current prices of oil depends on your perspective towards the use of the Canadian oil sands. Environmentalists believe that the oil sands are greatly hurting, not only Canada’s ecosystem but also the planet overall. Maude Barlow, the senior advisor on water to the United Nations has compared the tar sands (the same as the oil sands) to Mordor, from The Lord of the Rings.

mordoralbertatar-sandsImage Source: Desmog Blog

With the exception of the Green Party of Canada, the fourth largest Canadian political party, the Liberals, NDP, and Conservatives all support continued use, growth, and investment in the oil sands, to varying degrees on varying issues. Any party that campaigned heavily against the oil sands would be committing political suicide. While the environment is an important issue long-term, a collapsed Canadian economy is felt much more intensely in the short-term and the average Canadian isn’t thinking about the future when they are struggling to put food on the table.

Although the oil sands bring employment to many Canadians, it does so at the expense of the environment. Local populations can be adversely affected as a result. PEMBINA reports that oil production is supposedly threatening “the sustainability of fish populations,” as well as using more than double the water than Calgary, Canada’s fifth largest city!

The weak Canadian Dollar and the weak Canadian stock market have counter-balanced the low cost of oil, negating much of the change in price. That is why oil prices have decreased across the board, but consumers are not feeling much change, if any at all. That is not to state that oil prices will never decrease for Canadians. It just means that this situation is multi-causal and the Dollar and stock market need to be strengthened if we are to see a dramatic change in price.

Another reason why oil prices have remained so high for Canadians while the price of oil was so cheap was the fact that the majority of the major oil companies own the gas stations in Canada, resulting in higher than normal gas prices to try and offset the cost of lower oil prices.

“The consumer at the street level is subsidizing the oil companies because are getting close to the bottom of the barrel on the side,” Roger McKnight, a petroleum market expert at En-Pro International Inc., said. “That’s why prices at the pump don’t seem to reflect what’s happening with the price of crude.”

Finally, Canadian consumers felt the effects of the free market. The major oil players in Canada include Imperial Oil, Shell, and Suncor. Combined, these major players set the prices at their gas stations and more or less maintain a monopoly over gas pricing.

The Effects of Lower Oil Prices On Canada

Lower oil prices do have a tremendous economic impact on communities large and small that rely on oil money to function. In Calgary, with oil at approximately $50 a barrel, oil producers are rather optimistic, acknowledging that they can weather low oil prices, even if they drop to as low as $10 a barrel.

Larger-scale economies, like oil export giant Russia for instance, had to spend $76 billion propping up the rouble in 2015, in part due to lower oil prices (although their recent acquisitions in Ukraine and Crimea probably had something to do with that as well). Without making broad economic predictions, the oil market seems to be on the rise, climbing from the mid-thirties in early 2016 to the more stable $50 per barrel that it sits at now.

While economies are doing well despite these setbacks, individuals are not as fortunate. Some, like engineering technologist Brian MacKay, who worked in the Alberta tar sands, have lost their jobs due to the falling oil prices. In fact, analysts are predicting that thousands of workers may lose their jobs, following thousands more that already have. Like a Bernie Sanders rally, one can quickly blame the one percent who continue to do well at the expense of the 99%.

The Death of the Keystone XL Pipeline and the TPP

20141122_USM987Image Source: The Economist

The Keystone XL Pipeline deal was axed by President Barack Obama. While the deal is not officially dead, it seems unlikely that it will be passed anytime soon. Opponents of the pipeline cited environmental concerns as the main reason the deal was killed.

The Keystone XL Pipeline would have given Canada an exclusive deal with the United States in the oil industry, allowing them to directly deliver their unrefined oil sands oil to Texan refineries in the Gulf Coast. The deal would have provided an economic benefit to both countries and it would have offered the United States a safe source of oil that doesn’t involve relying on Saudi Arabia, the United Arab Emirates, Russia, or other risky countries.

The TPP (Trans-Pacific Partnership) deal has been signed, but the Canadian government has not yet ratified it. This means that, while the TPP has been acknowledged by Canada, the nation does not have to abide by it. Even if it is not signed, it could be signed in the future.

In the United States, Congress refused to ratify it as well, even though President Obama signed the TPP deal. This means the deal is practically dead in the water for Canada if it does not have its largest and closest trading partner follow through with it as well.

Although it is too soon to understand what effects Canada will experience as a result of the deal being stalled, not ratifying the deal may have dealt a fatal blow to Canadian jobs and the economy. As it stands, under NAFTA, Canada has a special relationship with the United States that allows it to take advantage of such a rich and extensive trade market. However, with talk of expanding NAFTA, Canada’s special relationship could become threatened. The TPP provides Canada with a direct link to the oil industry, which results in a guaranteed market.

The Future of Canadian Oil

no_tar_sandsImage Source: Rabble

The Canadian tar sands will continue to exist, although it will surely be much smaller and more efficient. Canadian youth are more likely to support greener forms of energy than oil, and they may be more hesitant to support oil production within Canada, but there is no denying the worldwide need for crude oil and petroleum (a by-product of crude oil production).

If the environment continues to grow as a key issue, the oil sands will be placed directly in the crosshairs as it is a major source of pollution that many Canadians outside of Alberta would like to see expunged. None the less, the oil sands provide an important backbone to the Canadian economy that will be hard to replace if lost.

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